Thursday, June 8, 2017

Signposts: "Goldman Sachs Mulls the Death of Value Investing"

I was thinking of putting a post together on how the momentum stocks that have been up are the ones that are up today, Tesla up 10 bucks, NVIDIA up 10.75, etc. when this story was brought to my attention.
From Bloomberg:

Strategy pioneeered by Fama-French underperformed average

Slow growth, aggressive monetary seen hurting value factor

There isn’t much value in value investing these days.

The
value-factor strategy of buying stocks with the lowest valuations and
selling those with the highest, pioneered by Eugene Fama and Kenneth
French and espoused by none other than Warren Buffett, isn’t working.
Sticking to that approach has resulted in a cumulative loss of 15
percent over the past decade, according to a Goldman Sachs Group Inc.
report.

During roughly the same period, the S&P 500 Index has almost
doubled. While followers of the value-factor strategy are enduring their
longest sustained stretch of underperformance since the Great
Depression, Goldman Sachs said it may be too early to give up on it.

“The fundamental backdrop for value returns has been
especially unfriendly in recent years, but these conditions are unlikely
to persist (and are already moderating),” a Goldman Sachs team led by
equity strategist Ben Snider, wrote late yesterday in note to clients.
“Nonetheless, the maturity of the current economic cycle suggests value
returns will remain subdued in the near term.”

Most of the recent
weakness can be attributed to the unusually slow growth and prolonged
length of the current economic cycle, the strategists wrote. Specific
characteristics of the equity market prior to the last crisis were also
key, they said.

Waning cyclical headwinds are poised to fade, with
the near-term outlook for growth stocks looking better, the report
said. But so long “as humans continue to make investment decisions,”
Snider wrote, value will work out over the long haul. However, the more
widespread appreciation for and adoption of passive funds and smart beta
strategies implies returns “will be harder to capture in the future.”

Value
stocks tends to outperform when an expansion is broad-based and
relatively robust -– generally at the start of an economic cycle,
Goldman Sachs argues, and underperform when the economic backdrop is
weak and growth scarce. The team said that the so-called new normal of
slower growth magnified investors’ appetite for growth stocks like the FANG quartet....MUCH MORE